‘Tax authorities created anomalies in tobacco sector’

ISLAMABAD: Seven anomalies have been created by tax authorities through mini-budget for the formal tobacco sector and making it difficult to run their normal business.

It was the crux of the briefing extended by the representatives of Pakistan Tobacco Company here on Friday. They stated that in the recent budget, government increased the FED rates for Tier 2 brands by Rs3,000 per 1,000 sticks to Rs5,050 and by Rs10,000 per thousand sticks for Tier I brands to Rs16,500. This has resulted in an increase of 146 percent to 154 percent respectively. The retail price threshold, however, was increased from Rs6,660 to Rs9,000 per thousand sticks – a 35 percent increase only. If cigarette prices cross Rs9,000 per 1000 sticks, it will attract a Rs16,500 rate and lower will fall in the Tier 2 rates.

The officials stated that according to calculations, if 30 percent of Tier II volumes start selling at minimum legal price, just the loss of sales tax revenue to the government will be Rs19 billion. This is because the minimum legal price has not increased in line with past practice.

Historically, the Retail Price Threshold (RPT) used to move in line with the increase in Tier-1 FED but this time there is a deviation from the past precedent and not increasing the RPT systematically will have multiple negative implications. The Minimum Legal Price (MLP) of a law is set at 45 percent of the Retail Price Threshold, now increased to 60 percent. Unfortunately because the Retail Price Threshold did not increase as per past precedent, there was negligible increase in the minimum legal price (MLP). Currently the MLP stands at Rs108. This means the lowest price of any packet of cigarettes as per law is Rs108.

As expensive cigarettes become even more expensive, cheaper cigarettes continue to remain cheap and the minimum price of a packet of cigarettes has not increased in line with the Tier 1 increase, with the MLP the 45 percent of the Retail Price Threshold. PTC requested that the retail price threshold should increase in line with the increase in Tier 1 rates so that the minimum legal price in the country.